Sunday, December 25, 2011

Holiday Season Kicks in

The markets recovered from the early week blues to settle about 1.3 pc up and close the week with mild gains. The coming week is the expiry week and there are several reasons why the markets will close up for this week too.

1. It is the time for the year end bonuses and NAV reporting hence I do not expect any weakness i the markets. US and European markets are closed on Monday, thus giving a field day to the operators to take the markets up a bit. All in all it should be a flat to a positive week ahead.

2. Expiry should be above 4700 and closer to 4800. This is what the Open Interest data is suggesting. 4700 calls were unwound early on in the week giving an indication of the road ahead.

3. Taking Elliot waves into consideration, this could mean Wave 1 from 5400 ended at 4532. This could be an alternate count. If this is true then we are in for an up move of a couple of weeks and the markets could test 5050-5100 band again.
If we go by the original count,
wave 1 was 5400 - 4720 = 680 points
wave 2 was 4720 - 5099 = 379 points
wave 3 sub wave 1 ended at 5099-4532 = 567 points
Wave 2 should end at above 4815, 4882

Wave 3 sub wave 1 took about 9 days and the up move should end in about 6 to 7 days out of which 3 days are done with.This shows the up move to continue till about this expiry.

Now the last up move was 379 points. 4532 + 379 = 4911. Any move above this indicates that this up move will continue for longer than expected and it was wave 1 ending at 4532.

4. 4800-4810 has both the 20 EMA and 20 SMA which would act as resistance. It is also the 50 pc of retracement of fall from 5099. This makes 4815 a very significant resistance.

5. The overall trend is down and bounces could end in the range of 4900-5100. Only a break of the trend line joining all tops from 6339 which comes between 5250-5320 depending on which time frame one selects can signal a new bull line.

6. The dates for the elections in 5 states are out. Expect policy paralysis to continue till the end of Feb.

7.Anna Hazare agitation kicks in from Dec 27th and also the Lok Pal bill will get introduced in Parliament on that day. This can be a dampener for the markets.

8.Muthoot NCD has got an attractive rate of interest of 13.25 %. This is an interesting offering. On the face of it, looks pretty good. 2 years is not a long time frame and also Muthoot have very low NPAs of 0.58%. They will offer you Rs 64 rupees loan if you pledge gold worth Rs 100. This also means even if gold falls 30 pc from current levels, Muthoot is well protected.

9. Another way of playing it is that Muthoot NCD gives you a total of 27 pc absolute return in next 2 years. Instead of Muthoot, buy a gilt fund which should give you a return of 20 pc in next 1 year and then lock in that amount at say 8-9 pc which should be the FD rate in 1 year time frame. Same returns but much more safer.

Next week will be a quiet week with 4650 and 4820 the range. Play safe. Those interested in individual stock picks we have Lakshmi's Cherry Picks.

Sunday, December 18, 2011

Markets Ahead

The Rate Hikes took a pause and the markets tanked in the last 2 hours to close the week -4.4 pc. Lets take a look at what lies ahead for the Indian markets.

1. The RBI as expected took a pause. There were wide spread rumors of a CRR cut. There is no basis for a CRR cut and these were just rumors spread by vested interests to take the markets down. The Gilt funds have a given an absolute return of about 4 pc in 1 month and this is an early indication of the benefits of gilt funds now that the Rate Hike cycle is coming to an end.

2. If we take a look at the Elliot waves. and C5 commencing from 5400.
C-5 -1 = 5400 - 4640 = 760 points
C-5-2 = 4640 - 5099 = 459 points which was almost equal to the golden ratio of 61.8 pc retracement.
If the second wave ended at 5099 then the targets for wave 3 are 4339, 4132 and 3869. The bare minimum target is 4339.

3. The key support areas of the retracement of the entire up move from 2250 - 6339 are 4777, 4295 and 3812. We have already seen how the area around 4777 (+/- 100 points) has given support multiple times. Now may be it is the time to test the support around 4300-4400 area.

4. The area around 4750-4800 now offers a stiff resistance and can be a shorting point.

5. We are testing the support line of the entire up move from Oct'08 and it should hold. There is a cluster of supports around the 4400-4500 area.

6. We are also heading into the holiday season and trading volumes will be thin. I expect expiry to be above the 4700 area.

7. Gold has corrected sharply and is soon heading into buy territory.

8. This is a good time to lock into high yielding fixed income and Gilt funds. The current high rates may not be available for some time to come. It is also the time to start building a portfolio of quality stocks. For those interested, we have Lakshmi's Cherry Picks.

Sunday, December 11, 2011

Action Packed Week Ahead

The Next week brings in a lot of news on the domestic front. This could be the last week of real big moves before everyone gets into the holiday mood. Lets try and take a look at the action ahead.

1. Next week, we have the monthly IIP numbers, monthly inflation figures and to end the week we have the RBI policy. If we have poor IIP numbers and tame inflation figures, the RBI may pause and even in fact cut the CRR or SLR rate. Expect markets to rally if any cuts happen.

2. The European summit has come. The outcome is not as great was expected and I expect markets to react mildly positive on Monday morning and put the event behind it.

3. Technically, if 5400-4640 was wave 1 then we are in wave 2. Now here comes the tricky part.
Wave 2 A = 5100- 4640 = 460 points
Wave 2 B = 5100 - 4841 = 359 points
Wave 2 C = ?
We have corrected around 56 % of the up move. If indeed, C is pending, then we have targets of 5125 and 5300 ahead.

The invalidation point for this would be 4720.

4. December has the year end bonuses coming up and hence usually there are not many huge falls in December. Markets do have a history of peaking out in January. Let us see what happens this year.

5. The PPF limit has been enhanced to 1 lakh. One can put in the extra 30000 rupees and get a higher interest rate of 8.6 % instead of 8 %. Also, Infrastructure bonds of IDFC and L&T are in the market giving an attractive interest rate of 9 % along with tax savings of about Rs 6000.

6. The government has been paralyzed with the FDI in Retail put on hold and the Anna Hazare agitation looming ahead. Ana agitation has the potential to defeat the UPA in the next elections whenever they are held. Manmohan Singh will not last this full term till 2014. The Congress will make a change to have a fighting chance in the next elections whenever they are held. This also caps the upside to the markets.

Its time to wait and watch with 4720 and 5050 as crucial breakout points. 1 could go log with 4841 as a stop loss.

For those interested in individual stock picks, we have Lakshmi's Cherry Picks.

Sunday, December 4, 2011

What does December hold for us?

The markets returned their best weekly showing in 2.5 years to close at 5050, a net gain of about 7.2 pc. Are we out of the woods?Let us try and explore.

1. This stunning rally has been on the back of Domestic liquidity. DIIs have bought about 700 crores worth of shares whereas FIIs have sold to the tune of 110 crores. FIIs have sold for about 3 days of the 6 day rally.

2. The Nifty has outperformed the broader market. The Nifty has gone about 7.2 % for the week whereas the broader CNX 500 has gone up by less than 6 %

3. The month of December has by and large been a very positive month for the equities. Since December 2002, the markets have always closed above the November close. This implies that this year if we go by history the markets should close above 4832. In all the years, the low for the month has always been below the previous month close. This implies that we should go down below 4832 at least once during the month.

4. If I try and project the average values, close should be around 5131, high at 5187 and low around 4731.

5. If we consider this up move as a retracement of the 5400-4639 fall then the next resistance to the up move comes at 5110.

6. In terms of number of sessions, the up move if it is an retracement should last for 6 to 10 sessions. 6 sessions are already over.

7. The logjam over FDI in retail will impact the markets negatively over the weekend. The next week should be either a flat or down kind of week.

For those interested in individual stocks or Gold, we have Lakshmi's Cherry Picks which are doing well.